G20 set to dash bank levy hope

The world's top economies were set to ditch plans for a universal global bank levy on Saturday amid signs of slippage in other reforms pledged during the financial crisis.

Finance ministers from the Group of 20 countries were wrapping up a two-day meeting to review progress on a string of initiatives agreed last year to make the financial system safer and protect taxpayers from having to pay for bank bailouts again.

Europeans and the United States say a tax would help fund rescues of ailing banks in the future, but hopes for a common global levy have been dashed by strong opposition from Canada, Japan and Brazil.

Japan has already introduced a deposit insurance scheme and I'd welcome it if other countries will positively set up necessary schemes, Japan's Deputy Finance Minister Naoki Minezaki told reporters on the sidelines of the G20 meeting.

There is no need for Japan to do anything new on bank levies, he said.

The G20 is expected to adopt as set of principles for a levy which no member state will be forced to introduce.

Finance ministers have signaled that implementation of tough new bank capital and liquidity rules to discourage risky behavior will be phased in beyond the end of 2012 deadline agreed last September in Pittsburgh.

G20 countries are divided over the scope, detail and timing of the new Basel III capital rules that will force banks to raise billions of dollars to meet the higher requirements.

A plan to require core bank capital to comprise pure equity or retained earnings to withstand shocks better is seen as too draconian by some European countries whose banks have been using hybrid capital, a mixture of debt and equity.

We can improve confidence and help recovery by clarifying both the magnitude of the increase in required common equity and a transition period that will provide sufficient time for financial institutions to meet the new rules, U.S. Treasury Secretary Timothy Geithner said in a letter to the G20.

The meeting's final statement is expected to stress the need for strong supervision of hedge funds, credit rating agencies and derivatives but no new measures are anticipated.

There is general agreement on some of those issues related to derivatives ... so I suppose a communique can serve a summary purpose in that way, Canadian Finance Minister Jim Flaherty said.

The Europeans are re-emphasizing their concerns about credit agencies but there's general agreement on that subject, Flaherty added.

French Economy Minister Christine Lagarde told reporters: It's not necessarily that we need additional measures.. but it's work in progress and we are obviously working against the clock and we want to deliver on time predicated in the Pittsburgh communique.

To reaffirm that work needs to be done and needs to be completed never hurts, Lagarde said.

Geithner also called for a consistent framework for oversight of derivatives across the major financial markets.

We should subject all dealers and all major participants in the derivative markets to supervision and regulation, including conservative capital and margin requirements...to mitigate the potential for systemic risk and market abuse, Geithner said.

Despite the failure to make headway on a universal bank levy and slippage in Basel III, policymakers point out that the United States is expected within weeks to approve the most sweeping reform of financial rules since the 1930s.

The European Union is also well advanced in adopting new rules on supervision and hedge funds, with a draft law on derivatives regulation due next month.